Pete Wargent blogspot


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Wednesday 30 August 2023

3-month annualised inflation back to target

Building approvals soggy

Building approvals fell by 8 per cent in July, driven by a 16 per cent decline in attached dwelling approvals.

It looks like Greater Brisbane might be ready for a much-needed increase in building approvals, but there's not much happening elsewhere. 

Detached home approvals continue to trend lower across most capital cities, to be 17 per cent lower over the year. 

Overall, total building approvals were still very soggy at just 12,668 in July, which is going to mean a significant undershoot in apartment supply versus record population growth. 

Over the year building approvals fell to 174,000, which is now very close to the decade low.

There was another big increase in non-residential approvals, which is taking some of the capacity away from the homebuilding market.

Inflation continues to decline

In other news, the ABS released the latest monthly inflation figures, which dropped from 5.4 per cent in June to 4.9 per cent in July.

This is of course now a long way down from the peak of 8.4 per cent in December as supply chains and the labour supply normalise. 

The most significant contribution to inflation over the past year has been the ongoing explosion in new home building costs, but this should now trend towards zero from here (the growth in rents will also slow from here).

Despite some extreme increase in electricity prices, the result was overall materially softer than market expectations.

Indeed, on a 3-month annualised basis the monthly inflation indicator has dropped to just 2.7 per cent, as highlighted by NAB:

There are some big readings to drop off the annual inflation figures over the next 6 months, and it's good to see interest rates doing their thing and inflation moving in the right direction. 


James Foster ran the detailed analysis for you here

US job openings crash

JOLTS plunge

It's taken a long time, but it looks like the US labour market may finally be cracking. 

There was a huge decline in job openings to 8.8 million - down 1.5 million over the past 3 months, for the second biggest ever 3-month decline - which suggests that the unemployment rate will begin to rise sharply from here. 

This was one of the biggest misses on record, and follows a series of downward revisions of late. 

US 2-year Treasuries saw yields drop by 10 basis points to 4.90 per cent, as markets consider that the rate hiking cycle is increasingly likely to be finished.

Source: Bloomberg

Consumer sentiment is also very low, falling more than expected. 

ZeroHedge ran through the numbers here.


Westpac's latest Housing Pulse reported that consumers are still very cautious about buying property.

Nevertheless, housing price forecasts are now overall bullish for the next 3 years.

Source: Westpac Housing Pulse

Tuesday 29 August 2023

Lending settings are too restrictive (ANZ)

Hitting the buffers

ANZ's Shayne Elliott lamented the highly restrictive lending buffers that remain in place, despite the interest rate cycle having essentially all but peaked. 

This unnecessarily shuts many first homebuyers and many prospective landlords out of the housing market, and almost makes life hard for small businesses that want to borrow. 

Source: The Australian

Landlords have been further discouraged from making long-term investment decisions by endless changes and tinkering to property and land tax rules, tenancy rights, and other proposed changes by Federal and state politicians. 

Meanwhile, many parts of the country are suffering from a severe shortage of rental housing.

The ABS reported today that only 1.3 per cent of dwellings showed no signs of recent electricity use, which is a far cry from the 10 per cent vacancy rate often cited from Census nights (when in reality many of us are often travelling, either interstate or overseas). 

In south-east Queensland there are no worthy remedies in sight, leaving politicians to take to social media every few days to effectively force some positive optics.

This week, for example, eight new dongas in's better than nothing, for sure, but it's not a sustainable solution for the housing shortage across SEQ. 

Non-banks are now at lasty pushing the envelope a little in terms of allowing investors to test their feet in the market.

But realistically lenders such as Pepper Money are only a small part of the lending market and are not the first port of call for most borrowers. 

Source: Eric Wu, Property Talk Australia

The general idea appears to be for tighter lending policies to work in tandem with monetary policy, but now the restrictive lending policies are causing more problems in the first homebuyer and rental markets than they are solving. 

Former Reserve Bank of Australia economist Peter Tulip from the CIS has made this point about paternalistic policy settings regularly of late:

Thomas Naylor adds:

Overall, the 3 percentage points lending assessment buffer for new mortgage borrowers made sense when the cash rate target was at the zero lower bound.

However, the cash rate target is now 4.10 per cent - and investors are often borrowing at mortgage rates of 6 to 7 per cent.

As such, the buffers make far less sense and should be normalised. 

Ways to solve the rental crisis (ausbiz TV)

ausbiz TV

I joined Danielle Ecuyer to discuss the Evergrande collapse in China, and ways to solve the rental crisis.

Tune in here (or click on the image below):

Will Albanese’s housing fix fix our housing crisis ? Big Picture Podcast

Big Picture podcast

This month on the Big Picture podcast, I joined Michael Yardney to discuss the latest government housing policy fix and more.

Tune in here (or click on the image below):

2 sense: Scott Keck’s rental supply solution, Evergrande collapse, & Brisbane becomes price leader!


This week on the 2-Sense segment, Batesy and I discussed potential solutions to the rental supply crisis, the collapse of China's second largest developer and what that means for Australia, and Brisbane becoming the house price leader.

Tune in here (or click on the image below):

You can also watch the video version here:

IGR projections: What will Australia look like in 2063?

Key takeaways from the IGR

This week, Treasury released the 2023 Intergenerational Report

A lot has been said about it, so I'll keep it short here.

It's interesting to note how dramatically population growth has overshot projections from the earlier reports. 

Up until the mining boom it had been expected that population growth would taper off over time.

Since then, we're looking at annual population growth of around 400,000 per annum on an ongoing basis.

There was a massive disruption through the COVID border closures, but we're making up for that right now (and then some)...

Source: Treasury

Part of the reason countries such as Canada, the UK, New Zealand, and Australia are going so hard on immigration is to increase the participation rate by bringing in young migrants, to slow the ageing of the population and reduce the dependency ratio (at least in the short term), and to boost headline GDP and innovation. 

By 2063 the population of Australia will - in all likelihood - be around 43 million, if population growth continues at around 400,000 each year. 

Source: Treasury

Of course as the population ages and as life expectancy increases, there will be a huge increase in healthcare employment and services. 

It's been one of the best sectors to invest in, and medical centres have tended to be a good commercial real estate investment too. 

Source: Treasury

A significant portion of the report was devoted to changes in the capacity of the various components of the national electricity market, with a big push for solar and wind generation now projected. 

Source: Treasury

How we will raise taxes may need to change over time. 

At present income taxes are high, but very little is raised from other potential sources of revenue, such as inheritances taxes. 

Overall, the future for Australia remains bright, despite a range of challenges, including for infrastructure, housing, water, and energy. 

It's a hugely popular destination for international students, graduates, and skilled migrants, and as long as government can keep the appropriate frameworks in place for investment and growth then Australia can continue to thrive for decades to come. 

Consumer spending: a rolling crash

ANZ spending tracker crashes

Been camping at a festival for a few days, so not been able to post so much.

But now back and refreshed!

Unfortunately it seems the Aussie consumer is not looking so refreshed, with the past few weeks showing a large deterioration...

After accounting for inflation, spending in the economy is tanking...

Tuesday 22 August 2023

This is how to negotiate like a pro

Australian Property Podcast

I was joined by Amy Lunardi to discuss how to negotiate like an expert.

Tune in here or click on the image below:

You can also watch the video version here:

Weak 2024 ahead for homebuilding

New home sales slump again

New home sales fell again in July, and over the past 3 months have been 33 per cent lower than a year earlier. 

This portends a slow couple of years ahead for homebuilding in the face of record high immigration.

An extra person every 46 seconds implies population growth of around 685,000 per annum...a blistering pace of growth that we've never seen before. 

There is a high number of dwellings in the pipeline but many projects are stalled and some won't complete as developers are crashing into insolvency. 

The HIA's media release is here

Sunday 20 August 2023

2-Sense: Lot prices shrink & surge, the fixed rate cliff gathers pace, & say g’day to Albo’s new housing supply policy


On this week's episode, Chris and I discussed rising land prices, the fixed rate cliff and whether it's a mirage, and the new housing supply target of 1.2 million homes over 5 years. 

Tune in here (or click on the image below):

You can also watch the video version on YouTube here:

Saturday 19 August 2023

Evergrande collapses into bankruptcy

China crisis

China's real estate market is the second largest asset class in the world, and it's coming severe pressure with prices falling and developers failing.

China's second largest real estate developer has crashed into filing for Chapter 15 insolvency in New York under the weight of the group's $468 billion of liabilities. 

The developer has been under severe pressure, its delayed results having reported mind-boggling losses of more than $80 billion over two years.  

What does this mean for Australia?

China is by far the largest trading partner of Australia, and as construction activity flails commodity prices - such as iron ore - are likely to come under pressure, reducing our export earnings.

Of course, the Chinese government has a long history of pumping enormous stimulus into the local economy, and a repeat of this shouldn't be ruled out. 

We can also pretty much forget any Chinese developers being active in Australia over the coming year.

As discussed on the podcast in recent weeks, the retreat of Country Garden means that only one Chinese developer remains active in Australia, at Barangaroo. 

Bond yields have pulled back over the past day or two, as concerns of contagion increase. 

The collapse of such as vast group must surely have dramatic knock-on implications, even in the event of a government intervention.

Indeed, Country Garden may be the next domino to fall, with the risk of default on its bond highly elevated, the group having failed to raise the funds to meet repayments over the past week. 

Friday 18 August 2023

Unemployment rate rises to 14-month high

Employment drops

There was a change to working regulations effective 1 July, reinstating the restrictions on student visa holders to a 48-hour working week. 

As such, some economists anticipated a +40,000 increase in the number of persons employed in July, as workers jostle for the newly freed up positions.

It didn't quite work out that way in the end, with employment declining by -14,600 in July, driven by a decline in full-time employed persons of -24,200.

Employment over the year to July still increased by a thumping +398,900, or by +2.9 per cent.

Immigration is running at record highs, however, and the working age population increased by a stonking +598,000 over the year.

Thus the number of unemployed persons is +4.9 per cent higher than a year earlier at a seasonally adjusted 528,800. 

In the month of July the unemployment rate jumped from 3.46 per cent to 3.71 per cent, which was the highest level in 14 months. 

The measures of underemployment troughed out a year ago, and annual wages growth looks to have peaked at a distinctly modest +3.6 per cent. 

Average weekly earnings increased by a slightly stronger +3.9 per cent over the year. 

The arrivals and departures figures showed 1.75 million arrivals over July, this being a seasonally strong month for arrivals as Aussies return from their Italian holiday jaunts and international students arrive for the new semester.

Net arrivals for the month of a massive ¼ million should keep plenty of pressure on the capital city rental markets. 

Overall, this was a considerably weaker than expected result which adds to the case for an extended pause for interest rates.

The government has plans afoot to continue processing visas at a rapid-fire pace, while there are nearly 150,000 reportedly in the queue awaiting family/parent visas.

It seems likely that the unemployment rate will rise as almost all indicators show the economy slowing, including the latest Westpac card tracker. 


James Foster ran the detailed analysis labour force figures here.

Wednesday 16 August 2023

How to deal with real estate agents

Property Podcast

UK inflation fell sharply for a second month in July, dropping from 7.4 per cent to 6.8 per cent, well below the high of 11.1 per cent in October last year.

Still, rents recording their fastest increase on record, although year-on-year house price growth slowed to around 2 per cent.


Meanwhile, back in Australia, I joined Amy Lunardi to discuss how to deal with real estate agents.

Tune in here (or click on the image below):


Fixed rate cliff

Elsewhere, I caught up with the team at Livewire Markets to discuss the fixed rate mortgage cliff.

Check it out here (or click on the image below):

Tuesday 15 August 2023

Wages growth sputters and falls

Wages growth misses again

Wages growth has been extraordinarily slow as compared to what had previously been expected.

In the June quarter the wage price index increased 0.8 per cent for the 3rd consecutive quarter, taking annual growth down a notch to 3.6 per cent.

The recent trend obviously suggests we'll be slowing further on the annual growth measure next quarter as well. 

In real terms, after inflation, wages growth was minus 2.4 per cent over the financial year. 

The share of jobs receiving a pay rise also fell in the June quarter. 

Private sector wages growth (3.80 per cent) has at least fared somewhat better than the dismal public sector growth (3.07 per cent) over the past year. 

At the state level the strongest growth was in Western Australia, at 4.2 per cent, but the peak has come in lower than previously thought likely, and unemployment will rise fairly quickly from here as the new migrants pour in.

Interest rates to fall next year

Soft and softening wages growth due to record high immigration is a key factor which differentiates Australia from, say, the UK (where earnings growth accelerated to 7.8 per cent last month). 

Another factor which has been different from the US experience is that most borrowers in Australia are on variable mortgage rates or short-term fixed rate deals, meaning that the transmission of monetary policy is comparatively far swifter in Australia.

Economists including CBA are expecting a salvo of interest rate cuts next year totaling approximately 100 basis points, with some economists expecting 150 basis points of rate cuts by mid-2025. 

With markets pricing for lower interest rates ahead, it now makes no sense at all for borrowers to be stress-tested for 10 per cent mortgage rates (and sometimes higher), and the extraordinary minimum 300 basis points lending assessment buffer should be revisited in due course.


SQM Research reported steady national residential vacancy rates for July at a tight 1.3 per cent.

There were declines in Sydney (to 1.6 per cent) and Perth (to just 0.5 per cent).

There was a sharp acceleration in asking rents in Melbourne, where the annual growth in asking rents (at 20.3 per cent) now exceeds Sydney (20 per cent). 

There are also proposals afoot to increased land taxes for landlords in Victoria and to freeze rents, which will only serve to tighten the rental supply in the medium term. 

Misguided policy, and the Housing Industry Association forecasts home building to slow further over the year ahead. 

Monday 14 August 2023

House construction cost inputs +33pc

Construction cost explosion

House construction cost inputs have increased by 33 per cent since the onset of the pandemic, according to the ABS Producer Price Indexes figures. 

Thankfully the increase now appears to be slowing.

But, as the graph below shows, costs have simply exploded since the beginning of 2020.

Of course, costs do generally rise steadily over time - partly because homes are better appointed than they use to be - but there's never been a period quite like this over recent decades.

House construction cost inputs are now 16x higher than in June 1971. 

The surge in costs was caused by a combination of the HomeBuilder stimulus package and chronic supply constraints caused by border closures and protracted lockdowns. 

The highest number of developers in a decade has been sent insolvent over the past financial year, as cost overruns on fixed price contracts crippled builders operating on often thin margins.

As such, housing supply is not keeping pace with record high housing demand, in spite of the elevated number of dwellings approved for construction and in the pipeline.

It's hard to see apartment development picking up significantly until the price of new apartments rises by at least a third. 


Greens rent freeze

The rental supply also won't be helped by further government meddling, this time in the form of proposed rent and rates controls.

It's hard to know where to start with this nonsense, except to say that it's unlikely to be enacted (it probably wouldn't pass the High Court), although rent controls could be introduced at the state level by some states...notably including Victoria. 

Of course, even the proposing of such interventions will only serve to further stymy supply as investor confidence deteriorates.

And as soon as you begin to think of the practicalities of the proposals they all falls to crap anyway.

Oh, and then there's this...

The Greens seemingly haven't progressed to year 9 economics yet, and seem to be periodically hell-bent on proposed policies more fit for Venezuela. 

Ho hum...